Businesses engaging the circular economy have seen a surge in investment over the last few years, having raised nearly $164 billion (£119.7bn) between 2018 and 2023, according to the latest research from economic campaign group Circle Economy.

After a close examination of global financial streams, the Circularity Gap Report Finance found that firms with circular business models are booming, with investment surging by 87% between 2021 and 2023 compared to earlier years.

Along with KPMG International and the International Finance Corporation, Circle Economy’s study revealed that investment in the circular economy has grown from $10 billion (£7.3bn) in 2018 to a peak of $42 billion (£30.6bn) in 2021, before falling slightly to $28 billion (£20.4bn) in 2023.

The vast majority of those investments have come from private backers, almost $35 billion (£25.5bn) worth in 2021 alone, with the report claiming that interest in circular business models is driven by their ability to generate additional revenue, unlock new markets, and deliver greater value from fewer resources.

However, even as circularity emerges as a key strategy for firms looking to manage resource risks from supply chain disruptions and material scarcity, the failure to surpass the 2021 peak suggests waning momentum.

Circular investments still represent just 2% of all tracked capital, with banks accounting for the majority of these investments in the form of debt, while high-impact circular solutions and innovations in design and production have received less than 5% of all investment, despite their potential to eliminate waste and pollution at the source.

Although this evidence would suggest that the circularity gap continues to widen, Circle Economy said that the low figures reveal a vast unrealised potential, with a more circular economy allowing for higher living standards, reducing environmental pressure and building long-term economic resilience.

‘The circular economy isn’t just a sustainable solution—it’s an essential tool to manage financial risk,’ said Marvin Nusseck, finance lead at Circle Economy. 

‘From supply disruptions tied to resource dependence on single countries, to the rising likelihood of taxes on virgin materials, the economics of resource use is shifting.”

“Circular businesses are well-positioned to thrive in this new reality. That’s why investors must rethink how they assess risk and value in circular models – updating their frameworks to reflect the circular economy’s benefits and building resilience as a result.”

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The report argues that realising this potential will require investors, lenders, regulators and policymakers to work together in a concerted effort to shift capital toward circular solutions.

That is the same message put forward by Scottish campaigners and policymakers earlier this year, who argued that Scotland needs to rewire its economy to become fairer, greener and more prosperous. 

The Economic Development Association Scotland and Zero Waste Scotland said that the circular economy should be at the heart of Scottish Government plans for growth, and dubbed Scotland a ‘take-make-waste’ economy that reuses just 1.3% of materials.